09 April 1964
Supreme Court


Case number: Appeal (civil) 537-539 of 1962






DATE OF JUDGMENT: 09/04/1964


CITATION:  1963 AIR 1737            1964 SCR  (2) 921  CITATOR INFO :  R          1985 SC 278  (4)  RF         1991 SC1806  (8)

ACT: Agricultural Income Tax-Assessment-Land owned by two persons in  shares--Common  Manager  appointed-Partnership  or   co- ownership--Test--Bihar  Agricultural  Income Tax  Act,  1948 (Act  32 of 1948), ss. 2, 3, 13, 28  (3)-Indian  Partnership Act, 1932 (Act IX of 1932), s. 2 (k), 4.

HEADNOTE: The   Champaran   Cane  Concern,   appellant,   carried   on agricultural operations in lands owned by two persons.   One of  these two persons had a share of four annas in  a  rupee and  other twelve annas in a rupee.  They appointed  another person  as a common manager for facility of cultivation  and management.  There was no partnership agreement entered into by  these two persons.  In the returns submitted to the  tax authorities  for the assessment years the concern was  shown as a "firm". The  Agricultural  Income  ’Fax  authorities  assessed   the appellant  for three years on the basis that  the  appellant was a partnership firm under s. 3 of the Bihar  Agricultural Income Tax Act, 1948.  The assessee claimed that it was  not a partner. ship firm but a co-ownership concern and that  it could  be assessed only under s. 13 of the said  Act.   This plea  was rejected by the Income Tax officer.  Appeals  were filed to the Deputy Commissioner of Agricultural Income  Tax and the same were dismissed.  Applications for revision were then  filed before the Board of Revenue.  The Board did  not accept the plea of the present appellant that the assessment should have been made under s. 13 or the Act.  Thereafter an application was made to the Board, for making a reference to the High Court which was refused.  Thereupon, the High Court was moved under s. 28 (3) of the Act for a reference by  the Board  and the High Court called for a reference.  The  High Court held that the question whether, the assessee was a co- ownership  concern or a partnership firm was a  question  of fact,  and  that there were facts and circumstances  in  the case  from  which it was open to the taxing  authorities  to come to the conclusion that



922 the concern was a partnership firm.  The High Court answered the reference against the assessee.  The present appeal  was filed by Special leave of this Court. In  the  appeal  before this Court  substantially  the  same questions  were raised as before the High Court, the  taxing authorities and the Board of Revenue. Held that the question whether a concern is a partnership or not,  is  a  mixed  question of fact  and  law  and  if  the authorities  who  have to ascertain that  question  apply  a wrong principle of law in instructing themselves as to  what they  have  to  find,  then their finding  of  fact  is  not conclusive because they have done it under wrong principle. Modern Rigg & Co. and R. B. Eskrigge & Co. v. Monks (1923) 8 T. C. 450, referred to. Held further that the appointment of a common manager by two co-owners acting together is consistent with either view and does not clinch the issue in favour of a partnership. The   mete  fact  that  the  profits  or  even  losses   are distributed in accordance with the shares of the two  owners does  not  necessarily establish a  partnership  within  the meaning of the Partnership Act. One  of the principal differences between a partnership  and co-ownnership  is that co-ownership -is not necessarily  the result  of  agreement whereas partnership  is.   The  second difference is that co-ownership does not necessarily involve community  of  profit  or  of  loss  but  partnership  does. Another  difference  is that one co-owner  can  without  the consent  of other, transfer his interest etc. to a  stranger but  a partner cannot do this.  Fourthly, in  a  partnership each  partner  acts for all but a co-owner is  not  such  an agent real or implied of the other. A  mistake by the Revenue Board in framing the question  for reference  to  the  High  Court will  not  change  the  real position in law. Simply  because a co-ownership concern has described  itself as  a  "firm"  in  the printed  forms  of  return  does  not necessarily  mean that it is a partnership firm  within  the meaning  of s. 4 of the Indian Partnership Act as  indicated in s. 2 (k) of the Act. 923 From  the  facts and circumstances of the case it  is  found that  the  appellant  is a co-ownership concern  and  not  a partnership.   The manager is liable to assessment under  s. 13 of the Act.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos. 537,  538 and 539 of 1962. Appeals by special leave from the judgment and decree  dated September 29, 1959, of the Patna High Court in Miscellaneous Judicial cases Nos. 227 to 229 of 1957. H.   N. Sanyal, Solicitor-General of India and P. K. Ohatterjee, for the appellants. S. P. Varma, for the respondents. 1963.  April 9. The Judgment of the Court was delivered by S.K. DAS J.-The Champaran Cane Concern, appellant  before us, was assessed to agricultural income-tax under the  Bihar Agricultural Income-tax Act (Bihar Act 32 of 1948), referred to as the Act in this judgment, by the Agricultural  Income- tax  officer, Motibari for three years 1356 F. 1357  F.  and 1358  F.  corresponding  to  1948-49,  1950-51  and  1951-52 respectively.  It was assessed as a partnership firm for all



the  three years, though the assessee claimed that it was  a co-ownership  concern  belonging to  two  persons,  Padampat Singhania  having  Re.  0-4-0  share  and  Lala  Bishundayal Jhunjhunwala  having Re. 0-12-0 share.  The concern, it  was stated, carried on agricultural operations in six farms con- sisting  of a little over Ac. 2,000-00 of land out of  which about  Ac.  1,600-00  were  purchased  jointly  by  Padampat Singhania  and Bishundayal Jhunjhunwala and Ac. 483-00  were purchased  in the name of a mill, namely,  Motilal  Padampat Sugar  Mill  of  which the aforesaid two  persons  were  the owners.   Later on by a resolution of the mill-company,  the farms 924 were separated from the mill and the lands in their entirety were cultivated by the concern.  As nothing now depends upon the  distinction between the lands purchased in the name  of the  mill and those acquired otherwise, we shall ignore  the distinction for the purpose of these cases. The  assessee  claimed that the concern was  a  co-ownership concern  belonging  to the two persons above  named  in  the shares  already  indicated, and as .they were  residents  of Uttar  Pradesh  at a very long distance from  the  farms  in Champaran,  they  appointed  one S. K.  Kanodia  its  common manager  for facility of cultivation and  management.   This common  manager  lookde after and managed  the  agricultural operations  during the years in question.  The further  case of  the assessee was that the lands were  undivided  between the  co-owners and the total net profits arising out of  the joint  cultivation were divided between the  two  co-owners. On  these statements the assessee pleaded that s. 13 of  the Act applied and the common manager should have been assessed in respect of the agricultural income-tax payable by each of the  two  co-owners in respect of their shares  only.   This plea of the assessee was rejected by the Income-tax officer. Appeals were then preferred against the assessment,, made to the  Deputy Commissioner of Agricultural Income-tax.   These appeals were dismissed with certain modifications with which we  are  not  now concerned.  Then,  three  applications  in revision  were  filed to the Board of  Revenue.   The  Board reduced  the assessment under schedule C but did not  accept the  plea of the assessee that the assessments  should  have been  made under s. 13 of the Act.  The assessee then  moved the  Board  of Revenue for making a reference  to  the  High Court on the following question of law which it stated arose out of the order of the Board :               "Whether on the facts and circumstances of the               case the common manager is to be assessed.                925               under s. 13 of the Bihar Agricultural  Income-               tax  Act (Bihar Act 32 of 1948) in respect  of               the agricultural income payable by each of the               partners;               It is to be noticed that the underlined  words               in  the question appeared to assume  that  the               concern  was a partnership firm.   The  Board,               however, refused to make a reference.               The  High Court of Patna was then moved  under               s. 28 (3) of the Act and, it called for a  re-               ference from the Board on a differently worded               question   which  expressed  the  real   issue               between the parties               "Whether in the facts and circumstances of the               case,  the common manager should  be  assessed               under  section  13 of the  Bihar  Agricultural               Income Tax Act in respect of the  agricultural



             income  tax  payable by  the  persons  jointly               liable ?" The  question framed by the High Court did not  assume  that the   co-owners  of  the  concern  were  partners   thereof. Strangely enough when the Board submitted a statement of the case  in pursuance of the order of the High Court, it  again reverted  to the old form of the question.  The High  Court, however, took the question to be the one which it had  asked the’  Board to refer to it and on that footing  answered  it against the assessee.  The High Court said that the question whether  the  assessee  was  a  co-ownership  concern  or  a partnership firm was a question of fact, and even otherwise, there were facts and circumstances from which it was open to the  taxing authorities to come to the conclusion  that  the firm  was  a partner-ship firm.  On this  footing  the  High Court answered the question against the assessee. 926 The  assessee  then moved this court for special  leave  and having  obtained such leave has brought the present  appeals to this court from the decision of the   High  Court   dated September 29, 1959. We may now refer to some of the provisions of     the    Act which  bear upon the question before us. S. 2 of the Act  is the definition section.  According to   the definition given in  that section "agricultural income" means inter alia  any income  derived  from land which is  used  for  agricultural purposes.   It  was not disputed before us that  the  income which  the  assessee in those cases derived  was  from  land which  was  used  for  agricultural  purposes,  namely,  the cultivation  of  sugarcane  etc.   The  definition   section further stated that tile word "firm" had the same meaning as in  the Indian Partnership Act, 1932, and the word  "Person" meant  any individual, association of individuals owning  or holding property for himself or for any other or partly  for his  own  bent-fit and partly for another either  as  owner, trustee, receiver, common manager, administrator or executor or  in  any  capacity  recognised by  law  and  included  an individual,  Hindu  family,  firm or  company  The  charging section  is  s. 3 which says  that  agricultural  income-tax shall be charged for each financial year in accordance  with and  subject  to  the provisions of the  Act  on  the  total agricultural  income of the previous year of  every  person. Agricultural income-tax means the tax payable under the Act. It  would  appear  from what we have stated  above  that  by reason  of the definition of the words "firm"  and  "person" the assessee if it is a partnership firm would be liable  to tax  as a firm on its agricultural income by reason  of  the charging  section,  namely,  s. 3. In s.  3  of  the  Indian Income-tax  Act, 1922 which is similar in terms,  the  words "’of every firm or association of persons or the partners of the  firm"  were subsequently added in 1924 and  the  Indian Income-tax  Act  makes  a  distinction  in  the  matter   of assessment  921 between  a  registered  and an unregistered  firm.   We  are referring  to these provisions, because at one stage it  was argued on behalf of the assessee that s. 13 of the Act which we  shall presently quote applied to the present cases  even if  the  assessee were a partnership’  firm.   Appearing  on behalf  of the assessee, the learned Solicitor General  has, however, conceded before us that he is not in a position  to argue that s. 13 of the Act will apply even if the  assessee is a partnership firm.               We may now read s. 13-               "Where  any  person  holds  land,  from  which



             agricultural  income is derived, as  a  common               manager  appointed under any law for the  time               being  in force or under any agreement  or  as               receiver,, administrator or the like on behalf               of persons jointly interested in such land  or               in the agricultural income derived  thereform,               the   aggregate   of  the  sums   payable   as               agricultural income-tax by each person on  the               agricultural income derived from such land and               received  by  him shall be  assessed  on  such               common manager, receiver, administrator or the               like,  and  he  shall  be  deemed  to  be  the               assessee   in  respect  of  the   agricultural               income-tax so payable by each such person  and               shall be liable to pay the same". It  is  quite  clear from the section that  where  a  common manager appointed under any law or under any agreement holds land from which agricultural income is derived, on behalf of persons   jointly   interested  in  the  land  or   in   the agricultural income derived therefrom, the aggregate of  the sums  payable as agricultural income-tax by each  person  on the agricultural. income derived from such land and received by him shall be assessed on the common manager in respect of the agricultural income-tax 928 so payable by each such person and the common manager  shall be liable to pay the same.  We have already stated that  the learned Solicitor-General has not now argued before us  that s. 13 will apply in the case of a partnership firm.  He  has however very strongly argued that s. 13 in terms will  apply if  the  assessee  in the present cases  is  a  co-ownership concern  (as distinguished from a partnership firm) and  the common  manager thereof must be assessed in respect  of  the aggregate of the sums payable as agricultural income-tax  by each  such  co-owner.   Mr. S. P. Varma  appearing  for  the respondent-State  of Bihar has indeed conceded that  if  the assessee  in  the present cases is a  co-ownership  concern, then s. 13 will apply and the question referred to the  High Court  must be answered in favour of the assessee.   He  has however argued that the High Court was right in holding that the  assessee  was a partnership firm and  on  that  footing answering the question against the assessee. Thus, the entire controversy before us narrows down to this: on the facts and circumstances stated in the cases, was  the assessee  a partnership firm or a co-ownership concern ?  We shall  presently come to the distinction between these  two, but  we think that in a question of this sort both form  and substance  must  be  considered.   Now,  partnership  or  no partnership  is ordinarily a question of fact, but we  agree with  learned  counsel for the assessee that it is  a  mixed question  of  fact  and  law  in  the  sense  that  if   the authorities  who have to ascertain question of fact apply  a wrong principle of law in instructing themselves as to  what they  have  to  find,  then their finding  of  fact  is  not conclusive  because  they have done it  according  to  wrong principles  (see Morden Rigg & Co. and R. B. Eskrigge &  Co. v. Monks (1).  Looked at from the aforesaid standpoint,  the question before the taxing authorities in the present  cases was  whether on the facts and circumstances  established  in the cases an inference of a partnership firm within (1)  (1923) 8 T. C. 450,464.  929 the meaning of the Indian Partnership Act, 1932 followed and s. 13 was not attracted thereto, That, we take it, must be a question  of law.  That was the question which was  referred



to  the  High Court and the High Court answered  it  on  the footing that the proper inference was that the assessee  was a  partnership  firm  within  the  meaning  of  the   Indian Partnership  Act,  1932.   The assessee  contends  that  the proper  inference  is that the assessee was  a  co-ownership concern  and not a partnership firm and on that footing  the common manager is entitled to be assessed under s. 13 of the Act. Let us first see what are the facts and circumstances  which have  been established in the case.  First of all,  we  have the  name of the assessee as the Champaran Cane  Concern,  a name  which may apply to a partnership firm as well as to  a co-ownership  concern.  Secondly, the finding of the  Deputy Commissioner of Agricultural Income-tax, a finding which  is part of the statement of the case, is that the two co-owners appointed  Kanodia  as the common manager  for  facility  of management.  Now, the appointment letter showed that the two co-owners  joined together in appointing Kanodia  as  common manager for supervision of cultivation and for management of the  agricultural properties in the district  of  Champaran. "Partnership"  within the meaning of the Indian  Partnership Act of 1932 is a relation between persons who have agreed to share the profits of a business carried on by all or any  of them acting for all.  The appointment of Kanodia by the  two co-owners acting together is consistent with either view and does  not clinch the issue in favour of a partnership.   The High Court appears to have taken the appointment of  Kanodia by the two co-owners as a circumstance establishing a  part- nership.   The High Court has further pointed out  that  the two  co-owners  lived in Uttar Pradesh and belonged  to  two different families.  We do not see 930 how  that  circumstance  gives any indication in  law  of  a partnership.  As to division of the profits and losses,  the finding  of the Deputy Commissioner of Agricultural  Income- tax  was that the two proprietors had no definite shares  in the agricultural lands, by which he must have meant that the lands of the six farms had not been partitioned amongst  the two co-owners by metes and bounds.  The cultivation was made jointly on behalf of the two co-owners by the common manager and  the profits arising therefrom were distributed to  them in  proportion of their respective shares of Rs.  0-4-0  and Rs.  0-12-0.  This circumstance has again been taken by  the High  Court  as a circumstance from which  an  inference  of partnership  necessarily  follows.  Again, we do  not  agree with  the  High Court.  Two co-owners may appoint  a  common manager  for facility of cultivation and management  without entering into a partnership and the fact that the profits or even  the  losses  are distributed in  accordance  with  the shares  of the two owners does not necessarily  establish  a partnership within the meaning of the Partnership Act, 1932. In Lindley on Partnership (Twelfth Edition page 57) the main differences  between  co-ownership and  co-partnership  have been compared.  One of the principal differences is that co- ownership  is  not  necessarily  the  result  of  agreement, whereas  partnership  is.  In the cases before us  there  is nothing  in the record to show that there was any  agreement between the two proprietors to form a partnership firm.  The second difference is that co-ownership does not  necessarily involve  community  of profit or of  loss,  but  partnership does.  In the cases before us there is a finding that  there is community of profit.  A third difference is that one  co- owner  can  without the consent of the other,  transfer  his interest  etc,  to a stranger.  A partner  cannot  do  this. About  this point there is no evidence nor any finding  that



the  two  proprietors  Padampat  Singhania  and  Bishundayal Jhunjhunwala could not transfer their interests in the  931 concern  without  the consent of each other.   The  greatest difficulty  which faces the respondent in the present  cases is  that  it cannot point to any fact or  circumstance  from which it can be inferred that one proprietor was the  agent, real  or  implied,  of the other.   In  a  partnership  each partner acts for all.  In a co-ownership one co-owner is not as such the agent, real or implied, of the other.  There  is a complete absence of any fact or circumstance  establishing a  relation  of agency between the two  proprietors  in  the present  case; nor have the taxing authorities come  to  any finding that there was such a relation. The  High  Court made a reference to the  returns  filed  on behalf  of the assessee for the three years in  question  as also  the  frame of the question which the  assessee  itself wished to be referred to the High Court.  As to the frame of the  question  we  have stated earlier  that  the  Board  of Revenue  really  made a mistake and it may even be  that  on behalf of the assessee the question was not properly framed. The  assessee’s contention all along was that it was  a  co- ownership concern and not a partnership, but in framing  the question the word partners was used.  We do not think that a mistake  in  the framing of the question,  which  was  later corrected  by the High Court, will change the real  position in  law.  As to the returns which were filed they  were  not printed  in  the  paper  book.   Learned  counsel  for   the respondent  gave  us copies of the returns.   These  returns showed  that in all the three years the  assessee  indicated its  status  as a co-ownership concern and the name  of  the assessee was shown as the manager, Champaran Cane Concern or common  manager,  Champaran Cane Concern.  The body  of  the return contained four alternatives as to whether the  return was being submitted by an individual, a firm, a joint family or an association of individuals.  The intention of  putting four ,alternatives in the printed form of the return is to 932 cut  out the alternatives which do not apply.  In the  cases before us the alternative relating to individual, family and association of individuals were cut out and the  alternative "firm" remained.  The High Court seems to have thought  that the retention of the word firm’ in the return amounted to an admission  that the assessee was a partnership firm.  We  do not  agree.  In the printed form of the return there was  no alternative as to a co-ownership concern and ina  popular sense, a co-ownership concern may describe itself as a firm. That does not necessarily mean that it is a partnership firm within the meaning of s. 4 of the Indian Partnership Act  as indicated in s. 2 (k) of the Act.  In our view no, fact$ and circumstances have been found in these cases from which  the taxing  authorities  properly instructed in law  could  have come  to the conclusion that the assessee was a  partnership firm  within  the meaning of s. 2 (k) of the  Act.   On  the contrary  the facts and, circumstances found by  the  taxing authorities  were  all  consistent with  the  claim  of  the assessee  that  it  was a co-ownership  concern  the  common manager whereof was liable to assessment under s. 13 of  the Act. A  number  of  decisions were cited. at the Bar  as  to  the distinction  between co-ownership and partnership.  We  have already  referred to the main differences between  the  two. The legal position as to this distinction seems to us to  be so clear and well settled that we consider it unnecessary to refer to the case law on the subject.  We do not think  that



any  useful  purpose  will be served  by  referring  to  the decisions cited at the Bar. For  the reasons given above we have come to the  conclusion that  the answer which the High Court gave to  the  question was  not correct.  We accordingly allow the anneals and  set aside  the  judgment  and orders of  the  High  Court  dated September 29, 1959, 933 and  answer  the question in favour of  the  assessee.   The assessee will be entitled to the costs throughout. Appeals allowed.